China reforms create bigger stage for online business performance

Thursday, 21 Nov 2013 | 5:58 PM ETReuters

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China has released new rules to boost spending in its fast-growing e-commerce sector as it looks to encourage greater levels of domestic demand after the country's leaders announced its most ambitious reforms in decades earlier this month.

China will target total e-commerce transactions of 18 trillion yuan ($2.95 trillion) by 2015, according to guidelines released by China's Ministry of Commerce (MOFCOM) on Thursday. Total e-commerce spend last year was 8.1 trillion yuan.

With the rise of smartphones and broadband connections, China's online retail segment is set to overtake the United States as the world's biggest this year and reach 3.3 trillion yuan by 2015, according to Bain & Co. Total spending by Chinese consumers on online shopping reached $212.4 billion in 2012, compared to $228.7 billion in the United States.

China policymakers are keen to boost consumption and services, which they see as the future of the economy after years of investment and export-led growth.

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According to the new directives, China is targeting e-commerce to make up more than 10 percent the country's imports and exports. It wants the same proportion of the consumer retail market to be purchased online.

"E-commerce can reach the majority of consumers much faster than offline retail. It's also a capital efficient way of growing consumption, and fast. With those two things together I can understand why it's a priority," said Jeff Walters, China-based partner at Boston Consulting Group.

The new directives will support firms such as market leader Alibaba , which is preparing for an initial public offering that could value the firm at more than $100 billion. Alibaba's Tmall platform holds more than half of the online business-to-consumer retail market. It's eBay-like sister site, Taobao, also dominates China's consumer-to-consumer sales.

Officials from Alibaba were not immediately available to comment on the new rules.

The guidelines are also another incentive for the country's bricks-and-mortar retailers to move online. China's largest electronics seller, Suning Commerce Group, is setting up an online-to-offline model to keep pace.

China will help online and offline retailers organize promotions and events to encourage consumers to shop online as well as helping traditional offline retails establish a digital presence, according to the directive.

The country's e-commerce firms will also be encouraged to establish operations overseas to boost cross-border online trade, while authorities will look to improve cross-border logistics, payment and regulatory systems.

The new directive will also support e-commerce for small and medium-sized firms, improve key logistics systems in tough-to-reach regions, set up local funds to support online business and help cultivate talented personnel in online business.

"There's a lot of headroom for e-commerce to be growing, with an enormous population that hasn't even turned to online shopping yet. There's a lot of upside," said Walters.